• • An all$-$equity firm with $2$ million shares outstanding currently hastotal assets of $$50$ million, total liabilities of $$10$ million, and net income of $$4$million. The company$’$s stock sells for $$10.$ The company is considering aninvestment that has the same PE ratio as the firm and a return that is expectedto equal the company$’$s current ROE. The cost of the investment is $$3$ million and it will be financed with a new equity issue.

    • $1.$ What will happen to the book value per share?

      • $2.$ What will happen to EPS?

        • $3.$ What will happen to the market value per share?
        • $4.$ What is the NPV of this investment?$\mathrm{}$

          $5.$ Does dilution take place?$\mathrm{}$

          $6.$ What would the ROE on the investment have to be for the price after the offering to be $$10$ per share? Assume the PE ratio remains constant.$\mathrm{}$

          $7.$ Based on the answer to part $6,$ what would be the NPV of this investment?
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Answer rating: 100% (QA)

Analyzing the Investment Proposal Heres a breakdown of the impact of the proposed investment on the allequity firm 1 Book Value per Share BVPS Current ... View the full answer